House prices see fastest rise in 18 months

House prices rose at their fastest rate for 18 months in October after a steep drop during the previous month, figures showed today.

The average cost of a home rose by 1.8% in October, partially offsetting September's record fall of 3.7%, according to Halifax.

But despite the increase, the group warned that the underlying trend for house prices was still downwards.

Property transactions are running at around half their normal level, and this has increased the volatility in monthly house price changes, contributing to the mixture of price rises and falls seen in 2010.

But the quarter-on-quarter change, generally seen as a smoother indicator of market trends, showed an acceleration in the rate at which property prices are dropping.

Homes lost 1.2% of their value during the three months to the end of October, the biggest quarterly decline since June 2009, although he group pointed out that the slide was well down on quarterly falls of 5% and 6% in the second half of 2008.

Martin Ellis, Halifax housing economist, said: "An increase in the number of properties available for sale in recent months, together with a decline in demand, has put some downward pressure on prices.

"We do not believe that prices are set to fall sharply over a sustained period. Interest rates are likely to remain very low for an extended period, which will continue to support the improved mortgage affordability position for homeowners."

The average home now costs £164,919, 6.6% above the trough reached in April 2009.

House prices during the three months to the end of October were 1.2% higher than they were in the same period a year earlier, although the annual rate of growth declined for the fifth consecutive month.

But property values have fallen by 2.3% since the start of 2010, and look set to end the year in negative territory if current trends continue.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Does the 1.8% rebound in house prices in October reported by the Halifax significantly change our view that house prices are likely to soften by around 10% by the end of 2011? In a word, no.

"Latest housing market data and surveys have been consistently weak, and the housing market really does not seem to have got much going for it at the moment."